Sodexo: Addressing Water Scarcity

Food services account for 75% of Sodexo’s activities in China; their supply chain accounts for most of the company’s water footprint

In 2009, Sodexo made the Better Tomorrow Plan; a Corporate Citizenship roadmap to last till 2020.

China’s agricultural sector uses more than 60% of the country’s water resources and contributes to more than 50% of its pollution. Water resources are notably scarce in four of the five top food producing provinces, namely Shandong, Jiangsu, Henan and Hubei where per capita supplies are below the water poverty mark – of 1,000m3 per annum. This year severe drought has once again plagued the north and Central China has suffered its worst drought in over 50 years.

How then does a company depending in large part on agricultural supplies for its operations manage water risk in such an environment? In June China Water Risk talked to Sodexo (SW:FP) a world leader in the provision of Food and Facilities Management Services and one of the largest multinational companies operating in China. With Sodexo’s Vice-President for Asia, Gilles Mahe , China Water Risk explores how the company is sourcing its products and how it foresees the on-going challenge of water scarcity and pollution facing the country.

Gilles Mahe has been with Sodexo for 11 years. With Sodexo Asia Mahe has worked as CFO as well as managing director for Asia excluding China. He is now Asia Vice President for Sodexo Asia Pacific in charge of strategic development for China and Japan.

Breaking ground in China

In 1995, Sodexo was the first international catering and facility management company to launch its business in China. Today it has nearly 600 operations in the country across 40 cities, and employs more than 15,000 staff in a variety of sectors such as Food Services, Business Support, Engineering Services and Lifestyle Services.

Food services account for 75% of the company’s activities in China, with facilities management accounting for the remainder. In the beginning, Sodexo provided these services largely to foreign companies; however following a change in government policy encouraging Chinese companies to outsource non-core activities such as catering, the company significantly increased its services to local companies.

Today, Sodexo delivers 600,000 meals in China daily; 60% of them in the Yangtze delta region, 20% in the Yellow river delta, 10% in Guangdong and 10% across the rest of the country. On average, Sodexo purchases 2,122 t of oil, 7,600 t of rice and 5,300 t of meat (pork and chicken mainly) annually.

Sodexo now has a strong track record and its food service operations are widespread across China, covering both the private and public sectors, including schools, colleges and hospitals1. Operations encompass staff restaurants, VIP and room services, banqueting and event catering amongst others and clients include major corporations such as Shanghai Automotive Industry Corporation (SAIC), Baosteel in Shanghai, CECIC (China Energy Conservation Investment Center), Microsoft, GSK 2 .

As such, Sodexo, ranked #1 food services company by China Cuisine Association in 2010, is undoubtedly a leader in the food service sector and is looking forward to strong double digit growth. Indeed Mahe indicates that China is strategically important for the company’s development and an on-going challenge is to secure sufficient local capacity, consequently Sodexo is committed to building its China work force with global and specific training programs.

Small scale farms and a large supply chain pose a challenge

Sodexo is no beginner when it comes to environmental issues. For the sixth time in 20103, the company was named “Global Leader” in its sector by the Dow Jones Sustainability Index.

In China, managing sustainability impacts including water is particularly challenging given the nature of Sodexo’s supply chain, which accounts for most of the company’s water footprint (direct food service operations e.g. food preparation and cooking only account for about 1%).

In contrast to operations in more developed countries, in China Sodexo sources most of its food products from local food companies and small farmers exploiting their own land (Figure 1). There is no national single product supplier. The average farm size in China is about 0.6 ha compared to 13.6 ha in Europe or 167 ha in USA.

Source: China in the World Food Equation: Some Comments. Scott Rozelle, Stanford University Jikun Huang, CCAP, CAS, May 2011

To put this in context, only eight local companies4 operating in the Agribusiness sector are listed and their total revenue represents only 4.5%5 of overall Chinese agriculture value.

The significant contribution of Sodexo’s supply chain and sourcing from many small suppliers means that assessing, managing and monitoring Sodexos’ water footprint is inevitably extremely challenging.

Building a water strategy for the future

Despite these challenges, Mahe indicates that Sodexo is committed to addressing water scarcity and is in the process of developing a global water strategy.

In 2009 Sodexo launched its “Better Tomorrow Plan” which it refers to as its strategic roadmap for Corporate Citizenship up to 2020. To execute the road map the company has appointed a dedicated steering committee and team. In March 2010 Sodexo partnered with WWF to work jointly on environmental issues in relation to global supply chains and in August it defined country road maps.

So what does all of this mean for Sodexo’s operations in water stressed regions such as China? In answer, Mahe indicates that the company committed to reducing its water footprint in all countries where it operates and is currently drafting a position paper specifically on “water and effluents” that outlines its strategy to maximise the opportunities and minimise the risks around water and effluents.

Accordingly this includes:

In conjunction with WWF, developing a virtual Sodexo water footprint using standard data and establishing calculation methodologies that deal with a complex supply chain.

Identification of water supply chain “hot spots” areas, by overlaying water scare regions on Sodexo’s highest volume agricultural supply commodities, and defining specific local actions in conjunction with its suppliers.

Identification of physical, regulatory, financial and strategic risks and business opportunities.

Seizing business opportunities to provide solutions to its clients in the sustainable management of their water and sanitation requirements as the recognition of the true value and importance of water is recognized.

Development of policies procedures and guidelines to assist Sodexo’s operations in risk minimization and to leverage the business development opportunities

Planning actions to raise internal and external stakeholder awareness on this subject matter.

On the supply side Sodexo appears to have stringent food and quality controls in China and audits its suppliers regularly. Environmental criteria have been incorporated into the company’s vendor’s codes of conduct, but only for guidance at this stage. These guidelines are expected to become mandatory with implementation of the “Better Tomorrow Plan” To overcome sourcing from so many suppliers the company is also is trying to establish some national sourcing global contracts for major products such as rice and oil.

Regarding water scarcity issues, Mahe explains that Sodexo is currently at the stage of developing a global inventory of its operations. Data collected will need to be further analyzed before defining Sodexo’s detailed water policy and action plan.

Looking forward, many of Sodexo’s clients, Nokia, P&G, Unilever for example, are already asking for performance targets, statistics and specific action plans to address issues around the company’s three sustainability priorities areas which are i) nutrition, health and wellness, ii) the development of local communities, and last but not least iii) protection of the environment. In Beijing, Sodexo has implemented special nutrition and wellness solutions for Nokia Asia Pacific Head Office. Sodexo is also preparing to develop special local communities support and sourcing program for one of its international customer.

On the issue of responsible farming practices, in France and the US Sodexo sources sustainably where it can, for example selecting local and seasonal produce, and sustainable agriculture production. Mahe indicates that as part of the company’s Better Tomorrow Plan, such practices will also be followed in China by 2015.

Overall, Sodexo appears to be taking China’s water crisis seriously, and is using its extensive experience globally to draft and implement water policies. This is undoubtedly good news given the company’s reliance on agricultural produce in a country facing water crises.

1 In 2001, Sodexo became the first international company to serve Chinese hospitals

2 FAW Group Corporation among other activities operates a joint-venture with Volkswagen AG